Toronto Income Property Newsletter: August 2011

Wow – it has been hot! This past month of July saw some really scorchers. I’m not so sure which is worse – showing income properties in the dead of winter or dealing with this 30+ degree heat. For all of you that find yourself working outside this summer, please take precautions. There have been a number of heat advisories so far, and I expect that there will be more to come. It’s all part of these ever-changing weather patterns. Just please do your best to keep yourself as cool as possible.

One of the areas that we are most active in is owner-occupied income properties. Many of our clients realize that it makes sense to rent out a portion of their homes to help pay down their mortgage. That’s why duplexes, triplexes and even houses with basement apartments are always popular. When we search for these types of properties, there are two things that I focus on. The first (and most important in my opinion) is the comfort of the owner’s suite. The amount of money that is generated from the other units (and the overall fiscal attractiveness of the property) comes second. If you are living in a suite that doesn’t suit you then it doesn’t really matter how much money you are saving. It is important that an owner’s suite have all the minimum features that make you happy to live in that unit. If you need two or three bedrooms, parking, ensuite laundry etc. and these are things that you absolutely can’t do without, then you shouldn’t sacrifice them. There are many beautiful suites in some of the income properties that I have come across. In some cases some suites in higher-end income properties are like opulent hotel rooms. Some offer more living space than complete homes. I often get asked where you find these “over-the-top” buildings in Toronto with great rental units.

From a rental property perspective, a property close to the subway line, restaurants and shopping tend to be more desirable to both to owners and renters. Other factors that high-end renters tend to look for are proximity to the more prestigious schools, sports clubs, etc. Properties close to the middle of the city – Yonge Street from Bloor Street all the way up to York Mills – get the highest rents. Other areas like the Beaches, Riverdale or High Park that have strong locational benefits are also very attractive to renters who are looking to pay a little more.

Where are the nicest income properties in town? Almost every exclusive neighbourhood in Toronto has duplexes and multiplexes mixed amongst the single-family homes. There is always activity in the high end income property market. You may not think about spending over a million dollars in Rosedale or Forest Hill but there are many homes in these areas that have fantastic rental suites in them. Key streets include Madison, Lowther, and Admiral in the Annex and streets like Maple & South in Rosedale. Sometimes suites can rent for as high as $5000 a month in these properties. That may seem like a ridiculous amount of money to pay on rent, but believe me, there is a market for these kinds of rentals.

Here are the neighbourhoods that are generally considered to be the most exclusive areas of our city and often generate the higher rents:

C01 – includes the Lower Annex, College Street, Chinatown & the downtown core

C02 – includes Upper Annex, Yorkville, Rathnelly & Deer Park (Yonge & St. Clair)

C03 – includes Chaplin Estates & Forest Hill

C04 – includes Cedarvale, Allenby, & Lytton Park

C09 – includes Moore Park & Rosedale

C10 – Includes Lawrence Park, Leaside & Midtown (Yonge & Eglinton)

E01 – Includes Riverdale & Leslieville

E02 – Includes The Beaches

E03 – Includes Playter Estates & Danforth Village

W01 – Includes High Park, Bloor West Village & The Kingsway

Market statistics show us that live-in owners and investors are comfortable paying big dollars for upper-end investment properties. Since most of them will not yield a strong cash-on-cash return, I’m sure they’re being bought based on location and the hope of eventual capital appreciation. Cap rates don’t generally apply as much to high end rental properties.

One other area that we haven’t included in the above districts is prime Cabbagetown which occupies a small portion of C08. There have been some very nice duplexes and triplexes that have sold, particularly east of Parliament close to the Riverdale Farm. It seems like this section of town is beginning to closely mirror Riverdale on the east side of the valley.

One final note: I mentioned about the rental guidelines increase last month and the news just came down Friday that the allowable increase each year for landlords to charge their tenants will in fact be 3.1%. That is quite a jump from where it is presently so it seems like landlords with a lot of suites will be able to hedge somewhat against increased